COP27: Making material transitions amid energy shortages and global warming

14 Nov 2022 --- A panel discussion at the UN Climate Change Conference (COP27) on “capturing opportunities in the materials transition” took place last Friday. The speakers discussed the existence and importance of green premiums to accelerate an environmentally sustainable materials transition and the need to form long-term partnerships along the value chain to drive decarbonization and the necessary investments.

COP27 is being held in Sharm El-Sheikh, November 6-18, 2022, to decrease the adverse effects of global warming on the planet and its inhabitants. 

“At COP27, companies have discussed how to overcome obstacles to scaling sustainable packaging solutions, such as improving collaboration across the value chain, creating incentives for sustainability within companies, establishing clear sustainability metrics for companies and the industry, optimizing for circularity, upskilling employees and leaders to enable them to execute,” Michel Van Hoey, senior partner at McKinsey & Company and speaker at the COP27 decarbonization debate, tells PackagingInsights. 

From left to right: Ralf Pfitzner (Volkswagen AG), Renae Kezar (Johnson Controls) Thomas Møller (Alfa Laval), Zouhir REGRAGUI (Emirates Global Aluminium) and Peter Hannah (Fastmarkets) and moderated by Anna Moore, Michel Van Hoey and Per-Anders Enkvist from McKinsey & Company Image Credit: David Dupont, global growth director poyamides at Arkema. Decarbonization and material transition
Materials are the “next net-zero frontier,” asserts Van Hoey.

“As commitments to decarbonize increase, demand for certain materials will increase, including copper, lithium, nickel and cobalt. Scope three commitments of downstream sectors (including automotive and packaging) are creating demand for the lower carbon supplies within the relevant commodities (including steel and aluminum),” he says.

Early movers securing access to the supply of low carbon volumes will most likely benefit. Furthermore, premia for low-carbon materials have been increasing.

“The opportunity for this COP is to have the discussion openly that natural gas, and in particular when combined with carbon capture, is a scalable energy solution allowing us to meet the needs of eight billion people while still meeting our climate goals,” says Craig Golinowsky, of Carbon Infrastructure Partners, a Canadian private equity fund backing projects related to fossil fuels as well as carbon capture.

Van Hoey says that at COP27, he spoke with many business leaders about how they can act decisively to seize an opportunity in the materials transition. “Decarbonizing materials will require cross-value chain partnerships.”

“Across different value chains, players will need to lay a foundation for transparency about carbon emissions, including baselining and benchmarking against peers, implementing carbon-accounting tools and embedding internal carbon prices in decisions,” he asserts. 

Van Hoey stresses that, in particular, the role of hydrogen in decarbonization has been a big topic of conversation at COP27. “At our events, we have discussed with investors how cross-sector collaboration can help meet rising energy demand.”The role of hydrogen in decarbonization has been a big topic of conversation at COP27 (image credit: United Nations).

“The good news is that investment in hydrogen is growing and costs are expected to decline. However, more direct investment in hydrogen is needed – we estimate as much as US$460 billion by 2030 – for production, transmission and industrial applications.”

Transitioning for packaging
The talks about material transition mean that sustainability remains the number-one topic across the value chain for the packaging industry, according to Van Hoey.

Furthermore, “policymakers and regulatory bodies are responding to public sentiment by implementing regulations related to single-use packaging while also placing extended producer responsibility (EPR) on consumer-facing products and a new focus on Scope 3 emissions.”

“In light of this, several companies have made commitments this week.”

Van Hoey says that it is, however, “too soon to tell” how the talks and decisions made at the world climate conference might influence the packaging industry. 

Policymakers are responding to public sentiment by implementing regulations related to single-use packaging, says panel speaker Van Hoey. A “chicken-egg problem”
Van Hoey explains that meeting this moment requires the materials value chain to cooperate as never before and solve a complex chicken-egg problem. 

“For example, if upstream producers, such as steel suppliers, don’t decarbonize, then downstream producers, such as car manufacturers, won’t have the low-carbon materials they need to reach their sustainability targets.”

“At the same time, however, upstream producers can’t decarbonize without clear downstream demand and price incentives for sustainable materials.”

Paris Agreement
Last year, the “Breakthrough Agenda” was launched at COP26 by a coalition of 45 world leaders, whose governments collectively represent over 70% of the global GDP. It is an unprecedented international clean technology plan to help keep 1.5 degrees-celsius in reach. 

The agenda provides a framework for countries, businesses and civil society to join up and strengthen their actions every year in key emitting sectors through a coalition of leading public, private and public-private global initiatives.

At COP27, countries responded to these recommendations with a package of 28 Priority Actions to decarbonize the power, road transport, steel, hydrogen and agriculture sectors, in line with the goals of the Paris Agreement.

Since 2015, under the legally-binding Paris Agreement treaty, almost all countries in the world have committed to:

• Keep the rise in global average temperature to “well below” two degrees celsius and ideally 1.5-degrees celsius, above pre-industrial levels.
• Strengthen the ability to adapt to climate change and build resilience.
• Align finance flows with “a pathway toward low greenhouse gas emissions and climate-resilient development.”

“Leaders across the value chain will need to create transparency on materials related to greenhouse gas emissions, define realistic materials-related decarbonization aspirations and develop practical decarbonization plans to achieve these; commercialize sustainable materials. They will also have to develop future-proof sourcing strategies for low-carbon offerings,” concludes Van Hoey. 

By Natalie Schwertheim